What’s your profit model?


What’s your profit model?

What’s your profit model?
 

When asked, most firms can provide a decent description of what their organizations do.
 

We fix broken cars
We provide legal services
We manufacture computers
We develop accounting software

 

Many firms confuse what they do with what adds value. For example, the firm that fixes broken automobiles is really ensuring that its customers can go to work on time, pick up children from school or take a road trip for a vacation.
 

The distinction may sound trivial, but it is often the difference between making or losing a sale. Historically, people have referred to this approach as “value based selling”.
 

In the Web 2.0 era, however, this approach needs to be taken one step further. There are countless web services that have done a fine job addressing a need and exploiting it. Facebook, Twitter, Dropbox and Pinterest are all fine examples of this. (Each firm, respectively, enables connectivity, dialogue, real-time access to files and engaging visual content.)
 

All of these firms are able to describe “what they do”, and they even do a great job of describing the value they add. Where some of these organizations fall short is in articulating their profit models.
 

A profit model is how a firm makes money. It’s not what you do, but what you’re paid for. These are not always the same.

 

Here, a simple example helps to illustrate the point. Let’s compare two accounting firms—Firm A and Firm B. They both providing accounting advice and ensure timely preparation of tax forms. For Firm A, this is “what they do”, and this is as far as Firm A goes in its work product or the articulation of its value proposition.
 

Firm B, however, understands that accounting services has become a commodity, and that the real value is in advice that helps move its clients’ growth forward. Firm B, for example, but go on to provide counsel as regards to leasing vs. purchasing or tax-efficient legal structures. In such cases, the value that is provided is not mere accounting services, but the results of a more profitable or fast-growing client.
 

Firm B’s profit model is to ensure that it is so tightly entrenched to a firm’s success that its clients continue to return for more and more services—each service is an investment in the firm’s growth and profitability.
 

That is Firm B’s profit model—to escape the commodity trap of accounting services and be seen as an investment in its clients’ growth and success.
 

So what’s your profit model? How clearly can you articulate what you do? Do customers understand the value you deliver? Are they willing to pay for that value? If not, maybe it’s time to give us a call.
 

About the Kabardian Group: We help clients achieve profitable growth. Short, simple and to the point. Our clients include companies large and small and at every stage of their development, including start-ups. www.kabardian.com
 

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